A bull-call spread on M&M

The long-term outlook for the stock of Mahindra & Mahindra (₹922.25) is positive. As long as it remains above ₹710, the positive outlook will not face any threat.

The stock finds an immediate support at ₹825. If the current trend sustains, M&M could reach ₹1,160.

F&O pointers: The counter of M&M added over 5 lakh shares in open interest. The M&M July futures trades at a discount with respect to the spot price of ₹924.95, due to dividend payments of ₹7.50 a share. The stock will turn ex-dividend on July 12. Option trading indicates positive bias, as in-the-money calls have witnessed unwinding of open positions.

Strategy: Traders can consider a bull-call spread on M&M. This can be initiated by selling ₹960-call (₹8.95) and simultaneously buying the ₹920-call (₹22.75). That means, traders need to shell out ₹13,800 for the strategy, as the market lot is 1,000 shares.

 

The maximum loss could be the initial payment and that will happen if M&M fails to sustain the current level and closes at or below ₹920. A profit of ₹26,200 is possible if the stock rises to ₹960 or above during this series. Traders can consider exiting the position at a profit of ₹15,000 or at a loss of ₹7,500. Hold the position, for at least two weeks.

Long-term investors can consider buying M&M futures with a stop-loss at ₹902 initially for a target of ₹1,160 with trailing stop loss.

Read the rest of this article by Signing up for Portfolio.It's completely free!

What You'll Get





Related

MORE FROM BUSINESSLINE


 Getting recommendations just for you...
This article is closed for comments.
Please Email the Editor